MCS Steel Non-Voting DR MSTUF

TD Initiate Coverage

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Milestone Apartment REIT

(MST.UN-T) C$18.04

Strong U.S. Multifamily Fundamentals Provide Platform for Growth Event

We are initiating coverage of Milestone Apartment REIT with a BUY rating and C$22.00 target price. Please see our full initiation of coverage report to be published later today.

TD Investment Conclusion

Since its IPO in March 2013, Milestone has demonstrated its strength as both an owner and operator, generating mid-single-digit AFFO/unit growth, while increasing its portfolio size by ~40% and reducing leverage by ~910bps over the same period. With leverage now in the high-40% range, a relatively low 60% AFFO payout ratio, and favourable U.S. multifamily supply and demand fundamentals, we believe that the REIT should be able to generate mid- to high-single-digit AFFO/unit growth in 2017/2018. Key points from our investment thesis include:

• High-quality, well-located garden-style apartment portfolio. The REIT's properties are strategically located in U.S. Sun Belt markets, with limited new supply and favourable demographic trends.

• External and internal growth opportunities. In our view, the REIT is well- positioned to continue to grow through acquisitions by participating in the record volume of U.S. multifamily transactions, and organically, through improvements in occupancy and rental rates.

• Largest Canada-listed REIT with 100% exposure to favourable U.S. multifamily market fundamentals. Total employment has fully recovered from the 2008/2009 recession and household formations are currently outpacing annual housing starts, which should contribute to strong organic growth.

• Well-positioned for earnings and distribution growth. With its current low payout ratio and expected AFFO/unit growth in the mid- to high-single-digit range, we believe that Milestone is well-positioned to continue to grow its distribution.

• Excessive valuation discount. Milestone is currently trading at a 6.5-multiple- point discount versus what we view as its closest peers on 2017E AFFO. On a P/NAV basis, Milestone is trading at a 13% discount versus a 1% discount for its closest peers. We expect the valuation gap to narrow, as the REIT continues to demonstrate its ability to generate both AFFO/unit and NAV/unit growth. We believe that based on its solid earnings growth outlook and relative valuation, the current unit price represents an attractive entry point.